Buying Your Own Island

Editor's note: This was adapted from a story that originally ran in the August 2006 issue of Kiplinger's Personal Finance magazine.

You can't miss the headlines these days: The U.S. real estate market has fallen on hard times. In fact, the National Association of Realtors just announced August 8 that it lowered it home-sales forecast for the sixth straight month.

However, the downturn on the mainland has yet to hit island properties, says Chris Krolow, chief executive officer of Privateislandsonline.com. That's because the downturn was related mostly to "middle-class residential purchases, which is a quite distinct category from luxury or development real estate such as private islands," Krolow says.

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But that doesn't mean you won't find a deal in the island market. "There are always opportunities ... if you can find the right region anda property with potential," Krolow says.

If you can afford waterfront property on the mainland, you can likely afford to purchase an island. In some regions, islands are about 20% cheaper per acre than waterfront mainland in the same locale. However, islands are often more expensive in more saturated areas because they offer more privacy, Krolow says.

What's more, the long-term investment value of an island often equals that of comparable waterfront property. The main reason is the diminishing supply of islands that can be developed. State governments and environmental groups are restricting construction of buildings on many undeveloped private islands, especially along the coasts of Florida and Maine. This trend is boosting demand for islands that don't have restrictions on renovating or replacing existing buildings.

Before we tell you how to buy one (see our five tips), ask yourself whether you're cut out for island living. Real estate brokers say happy island owners share two key traits: a fondness for privacy and a willingness to deal with major challenges. Because islands are typically in resort and fishing areas, you'll need to gear down from your rapid urban or suburban pace to a rural rhythm of mañana. The most content island owners have a sense of humor about the time it may take to rent a boat, hire construction contractors or perform other tasks.

American idylls

If you are interested in a particular region, contact a broker who has a long record of listing properties there. Such brokers often do not advertise listings on the Internet to protect the privacy of the owners.

Freshwater islands, especially ones in lakes in upper-Midwestern states, including Minnesota and Wisconsin, are usually the most affordable. Several convenient islands that are 10 acres or less recently sold for between $150,000 and $900,000. Saltwater islands off northern states, such as Maine and Washington, generally cost more; islands that are 10 acres or less recently listed at $230,000 to $3.5 million.

Temperate and tropical islands have their pluses and minuses. Those in the northern U.S. often sit on bedrock and are sufficiently high and sheltered to be protected from surging tides -- unlike tropical islands, which usually sit low on mangrove or coral reefs and are prone to flooding. Then again, tropical islands -- with their palm trees, conch shells and white-sand beaches -- are the stuff of our island dreams.

Foreign forays

If your tastes are a bit more exotic, you'll be pleased to know that thousands of islands are for sale in foreign waters. But foreign ownership also has its perils and pains. In Belize, for example, financing an island may mean paying a 15% interest rate and putting 30% down. Title insurance is practically unheard of in Belize and many other tropical countries. (Consider hiring a broker who uses a U.S. title-insurance company.) Most challenging of all, the permit process for making any change to the island -- such as dredging, burning materials or building a house -- can take months and cost hundreds of dollars.

But owners say such worries hardly detract from the dream-come-true of owning an island.

See five tips for buying an island.